Strong Volume on all Indexes

As I mentioned on Friday before the market opened and in a few hours after the opening Bell, the last day of October's options was very volatile at the beginning, yet the volatility dropped down by the end of the session. The interesting part of Friday's trading was strong advance in the Nasdaq 100 index (2.1% up) at the moment when the rest of the indexes was trying to push down: DJI dropped 0.29%, Russell 2000 declined 0.23% and S&P 500 modestly advanced by 0.20%. At the same time, the indexes from the financial sector strongly declined on Friday: S&P 500 financial dropped by 1.71%, Nasdaq Banking by 1%. Housing and precious metal indexes were strongly negative on Friday as well: Amex Gold, PHLX Gold/Silver and PHLX Housing decline more than 1 %.

Friday's trading session was very interesting from the prospective of volume technical analysis as well. It was the third trading session in a row of high trading activity on all indexes and on some indexes the volume surges were very strong. However, since we hade mixed trends on Friday, we have mixed volume readings on different indexes. On the Nasdaq 100 index we had strong bullish volume surges on the S&P Financial and DJI indexes we had strongly bearish volume surges (especially if we look at them from the lower timeframes). From the longer-term prospective I would consider all volume traded over the last three trading session as Bullish volume, simply , because it was at the top of the recent up-trend. The only under a question for me could be the S&P 500 Financial index which has been in strong decline for the last two trading session.

Overall, I would say that the volume we saw over that last three trading session must affect longer-term trend. The question is when. We have all the factors that precede the reversal down - we had strong up move without even short-term corrections; we had huge bullish volume accumulation during this up move which indicate strongly overbought condition; we had strong increase in volume which could be considered as greedy buying by retail traders, etc. Still, as consistently mentioned before, if market is predisposed to reverse its trend it does not mean it will happen tomorrow. It could happen tomorrow, yet, we still may see a week or even two weeks of side-way trading. To be sure in reversal I would monitor money flow direction on the daily charts (1 bar = 1 day).

The third interesting point is that on Friday we had up move on the US Dollar index which was supported by extremely strong volume. If we take a look at the US Dollar reversal in December 2009 we may see that when US Dollar started to move up this up-move was accompanied by huge volume surges. If we see that US Dollar will continue to recover it could be another point that would support correction on the US stock market - if you compare US Dollar index to S&P 500 index you will see that over the last half of year, in most cases, the US dollar trend is opposite to the S&P 500 trend.

P.S. I'm sorry I did not post any chart snapshoot today - will try to do it tomorrow if I have time.

Volume and Money Flow

The indexes did not bounce up (as I expected) after extremely lowadvance/decline readings seen on May 14, 2010. Last week I listed bad and good things, on my opinion, and if we compare the previous week decline with the recent week decline we may say that the difference is that the decline on May 20, 2010 was supported by big bearish volume surges. High volume surges during such decline are a very good sign to support extremely low advance decline reading.

Overall, there are several very strong signals as I see:

1. Extremely low NYSE Composite and S&P 500 advance decline readings on May 20, 2010 would suggest strongly oversold condition and possibility of up-move.

2. High volume on May 20-21, 2010 suggests that many investors started to buy attracted by low priced stocks.

3. On May 21, 2010 we may see change in the money flow toward bullish side.

4. McClellan Oscillator became positive which suggests that majority investors are focused on the advancing stocks.

5. The biggest positive signal for me is price's behavior on May 21, 2010. The indexes (Nasdaq 100, S&P 500, DJI and others) started session strongly down, during the first five minutes of trading they generated huge trading volumes and then on low volume the price went up. That tells me that the market went down to kill stop-loss orders and then when all stop-losses orders were eaten the price went up because of luck of bearish traders.

There is only one thing that on my opinion is not very nice - is a big number of low advance /decline reading over the short period of time. This is not a very good sign. Even if I am right and we will see a recovery, I would be very cautious and I would watch that recovery closely.

Oversold?

When the market goes down it triggers stop-losses set by traders. The job of a broker is to close a position when stop-loss order is triggered. A broker does not have to close a trader's position at stop-loss price - a position should be closed at any available price. Still, under usual circumstances if a stop is hit a position is closed at stop-price. However, if a big number of stop-loss orders are hit in a short time span and brokers have to close position of many traders and sell billions of shares and there are no enough buyers for these shares than those shares crash down until they are price low enough to attract buyers to buy them. That is how market may suddenly crash and that what most likely happened on Thursday May 6, 2010.

Now from technical analysis prospective we have strongly oversold volume and advance/decline signals. You may see very strong bearish volume surges in all market sectors: in NYSE, S&P 500, Nasdaq 100, DJI, etc. Actually, NYSE Composite trading volume on May 6, 2010 is the highest daily volume since October 10, 2008. At the same time you may see strongly oversold advance/decline readings on the NYSE Composite and S&P 500 indexes on May 6-7, 2010.

There is no doubt that the market has become strongly oversold during the recent crash down. There is enough oversold power to push indexes strongly higher and I would expect to see this move. However, majority technical indicators remain bearish indicating bearish mood among traders. In this case it could be good idea to wait at least for a few signals that would confirm a reversal. Personally I would be looking for decrease in volatility and change in the direction of the money flow.

Low Volume and Volatility

Another week of bullish trading and indexes (S&P 500, Nasdaq 100 and DJI) have climbed close to their January 2010 highs. In my "Money Flow" post on March 1, 2010 I wrote "I would say that results of my technical analysis are still Bullish and I see good odds of market moving higher. On the other hand, there is a possibility of volatile side-way trading in the same range the stock market is now". This exactly what happened this week - three day of flat, side-way trading and then up-move to the January's highs.

On January 31, 2010 in my "Technical Analysis" post I have talked about coming reversal and on February 4 and 7, 2010 in "NYSE Advance/Decline" and "S&P 500 Chart" I confirmed that the market hit the bottom. In one of my posts I mentioned that at that time the market was strongly oversold and it had power to climb back to the November-December 2009 flat levels and then to the January 2010 highs.

As a rule, when I look at the longer-term charts, I'm not trying to where the market is going to be in a month or two. When a trader (technical analyst) is trying to say where the market is going to be in a month he/she could run into situation when he or she can become relaxed and miss some important and critical events. I look at charts every day (during the trading session and after the market close). When I look at longer-term charts I have made a habit do not analyze where the market /indexes or stock could be in a month but rather say how strongly overbought or oversold market is and what is currently moving longer-term trend. I'm not stating that everybody has to do it, yet on my own experience I found that this is the best way to come to the longer-term charts and longer-term trends.

When somebody tells you that his technical analysis results tell him that the Dow Jones Industrials (^DJI) will be 6% up within a month, I would only tell that this person is a gambler who sells himself as a pro. You cannot tell where the DJI could be in a month. Anything could happen during this time. You may say that the DJI index has power to run 6% up, however, depending on how it runs, it could be 3% run or it could be 15% run. That is why when you make a statement about future trend and this statement is confirmed, it still could be highly recommended to monitor how predicted trend goes.

Now, when the indexes came close to the January's highs I think it could be useful to take a look at this recovery. Even as I said that the indexes (S&P 500, DJI and Nasdaq 100) were strongly oversold by February 5, 2010, we have not see a strong recovery on these indexes. They moved up, however it was very quiet move when most of the time the indexes were in side-way action with only modest advance. The volume during this recovery was stable and this recovery did not generate any strong volume surges. All of this would tell that:

1. The bullish traders are dominant on the market at the current moment, however their pressure is not very strong and they cannot push the price up stronger.

2. Current recovery did not generated any greedy buying when we would see investors rushing into the market and pushing prices up.

3. Current recovery did not generate a strong desire to fix profit a leave market.

I would say based on the January's oversold levels and that we did not see any strong bullish volume surges we may expect that the indexes may still go higher. Low volatility and quiet trading would confirm that. However, I think that the supply/demand balance is only slightly in favor of the bullish traders. One of the scenarios that I'm looking at is side-way trading at January 2010 high levels (it could be higher or it could be lower). If during side-way trading we see an increase in volatility and volume surges then I would recommend checking charts for possibility of another correction.

Index Technical Analysis

Another week of almost flat market is behind. The Dow Jones Industrials is only 1.7% up from the previous week close, the Nasdaq 100 index gained 1.7% up as well and the S&P 500 index moved only 1.3% up from the previous week close. It would be wrong to say that this is a positive market; as well it would be incorrect to call this market Bearish. Starting from the April 2, 2009 the DJI index is in almost flat market (see my previous "S&P 500 Chart" report on April 25, 2009). The S&P 500 index did start to move side-way on April 9, 2009 - almost a month ago as well. The Nasdaq 100 index that was less affected by the recession (no financial stock in this index listing) was one of the most Bullish indexes, yet, still almost flat.

So what is going on the stock market from the technical analysis point of view? The stock market has been extremely oversold in all terms during the recent recession. In additions many of the stocks (companies), because of the crisis in the financial sector, were traded below its actual value (they were under evaluated). As a result we had strong recovery movement in period from February 9, 2009 until April 9, 2009. Any strong movement up leads the market into at least short-term oversold condition when the first wave of the investors who wanted to invest into underpriced stocks become exhausted and the second wave of the investors is not coming very fast to keep up-trend moving. For further healthy recovery the stock market needs to be released from these oversold conditions, attract more investors and that is why healthy bullish market supposes to have corrections.

We had one month of up-move and now we have one month of side-move. The same as last week I would say that I’m still in bullish mood, still I may consider possibility of some correctional movement down. Even if my technical analysis is correct and we see drop down, I would not expect it to be strong and prolonged in the time, but rather shallow and short lived.

There are several factors that make me believe in that:

1. Over the last month, by looking on the short-term index charts I may say that according to my short-term technical analysis the indexes very actively reacted on every (even small) volume surge to the index downside by immediate reversal up-move.
2. From the same short-term technical analysis I may say that there were number of occasion when bearish signals were ignored and price continued to move flat or up.
3. The stock market started to ignore negative news. Even we hear and see every day complains about swine flu and Chrysler bankruptcy and TV financial "gurus" are making statements that it negatively affects the market – we still have not seen any strong movement down.

This is one of the characteristic of the long-term bullish market when the majority of investors ignore bearish signals and negative news. In opposite every positive news and bullish signal attract investors to come back into the market and start to invest by buying.

Simple technical Analysis

I will be short today. Sorry, have a lot what to say - do not have a lot of time. As I mentioned before, I keep my blog running because it keeps me on the track and helps me to sort my thoughts. I have some knowledge and I share it for free. I wish I would have more time to do it...

Quick chart below would describe the main points of my technical analysis:

The Nasdaq 100 and DJI chart are similar to the chart above:

• My technical indicators applied to the 60-day  chart (hourly chart: 1bar = 1 hour) tell that the indexes are overbought on the hourly chart - we may see (we already started to see) a correctional down move;
• The same technical indicators applied to daily chart as well as to higher timeframes show that the indexes still oversold in the mid- and long-term;
• The bullish volume during the recent recovery (March 9-18, 2009) is very strong and can cause serious correction down, unless, March 6, 2009 bottom was the last drop in the recession and now we are in the long-term recovery. In this case this bullish volume could be ignored and could indicate long term change in the stock market sentiment as it was in period from March 12 to March 21 of 2003 - if somebody remember those days...

Recommendations:

• Do your own homework.
• I consider that it was good time to invest in pension and I think it is still not too late. Because of the 2008 crash that was caused by financial sector a lot of good stocks are underevaluated...
• Sdudy charts and monitor them...

DJI - Stock Market Crash

Made on request of www.MarketVolume.com - the only source of volume and advance decline charts for indexes and exchanges.

To take closer look at the current sentiment on the stock market as well as to define the general market tendency I decided to take closer look at higher-time frame chart in particular on 2-year DJI chart.

Chart #1: DJI index. 2-year chart. 1 bar = 2 days. SBV(10), MVO(5,25,3).


From the chart above we may see the extremely high volume surges during the recent crash. Starting from the middle of September 2008 we had records in daily trading volume. The history of the stock market did not see such extremely huge panic selling ever before. This high volume tell us that the extremely huge number of investors left the market, yet we have some group of other investors who was buying in that period at small bargain price - some traders decided to satisfy demands of those who were leaving the stock market in panic. That is why we had this high volume (volume is two side transaction - for each seller there is a buyer).

The average trading volume on NYSE in 2007 was about 3.1 billion shares per day. The average NYSE trading volume in period from the middle of September 2007 until now is about 7 billion shares per day. Starting from September 8, 2008 more than 130 billion shares were traded. Even by assuming that the average price of a stock on NYSE is only $10 per share it will give us more the 1.3 trillion of negative money flow (out of the market).

As a rule, after a huge amount of money is taken out of the market (when SBV declines) we see a rebound (investors start to invest again). From the chart above you may see a rebound each time after SBV decline in August 2007, November 2007, January 2008 and July 2008. Each time when SBV start to advance after being at low negative levels we see that it indicates positive money flow (investors coming back). Sooner or later the investor that left the market in the result of the recent crash will come back and start to inject funds into the stocks. It could be tomorrow, it could be in a week or even a month. When it happened depends on the current political and economical factors affecting the stock market and how fast the investor could be reassured in the coming stability.

At the current moment the declining SBV on 2-year chart show that the Bearish sentiment is dominant among the mid- and long-term investors. Yet, as soon as we start to see advancing SBV on this chart we may assume that the long- and mid-term traders start coming back which may lead the market up and which could be an indication of the rebound. Taking into the account that we had extremely high volume surges during the recent crash we may expect very strong up-trend.

To better anticipate a possibility of the trend reversal we may always consult lower time-frame by applying the same technical indicators to 60-day chart in our case.

Chart #2: DJI index. 60-day chart. 1 bar = 1 hour. SBV(20), MVO(5,25,3).


From the 60-day DJI chart (see chart above) we may see that the critical moment in the recent crash happened in the period from September 15 until September 19, 2008. Exactly in this period we saw the biggest volume surges and also in this period the biggest transfer of the shares occurred. When we see the big number of shares (big volume) is changing hands during the crash it tell us that the number of panic sellers is dramatically reduced (their demands are satisfied – they sold) which may lead to the shift in the supply/demands balance. After that starting from the September 20, 2008 we still see negative money flow, yet the trading volume is dropping and the number of investors leaving the marked reduces (the red SBV areas become smaller and smaller). That reveals that we see slow change in the sentiment on the stock market and we could be in the beginning of the new uptrend.

In Summary: Overall we believe that we are in the begging of the strong reversal which was defined in the middle of the September by huge volume (extremely panic selling) that pushed the stock market into strongly oversold levels. The exact day when the big long- and mid-term investors start to come back depends on many factors, yet we already see a begging of this process on the 60-day chart. From the more conservative point of volume based
technical analysis it could be recommended to wait for a confirmation on the 2-year chart when SBV(10) starts to advance.

DJI Chart

Despite my bullish last week outlook (see the "DJI" post on September 22nd, 2008) on the stock market we had the attempt to retest the September 18, 2008 lows. Yet, the market did not hit the bottom, in opposite the DJI (Dow Jones Industrials) recovered half of the weekly decline during the last two trading session. Sometimes I have feeling that it would be much better if they did not even announced the bailout than announced it and then started to play political games around it....

During the past week we had strong decline. Because of that I decided to take a look at longer 1-year chart to see if the results of my previous technical analysis are correct.


From the DOW(30) chart above we may see that the magnitude of the volume during the stock market crash is very big. I have already mentioned in my "DJI Volume" post about my understanding of such huge volume. For me it's indication of the strong panic selling that lead the stock market into strongly oversold stage. If you may try to question it on the 60-day chart by pointing that September 19th rally up has released this oversold power, the 1-year chart make me believe that we did not even see the begging of the market reaction on that huge sell off:

• The volume is still very high, which indicates we still have panic and uncertainty in the market. Yes, the last week daily volume is lower than the daily volume we saw in period from September 12 until September 19, yet it still far above the average daily volume over the past year.
  
  - The fact that the volume is down tells me that the moment of worst fear is over and there are not as many sellers as we had on September 17-18, 2008. Y
  
  - Yet, the fact that the volume is still high tells me that there are still a lot of sellers. However, as I always mention - if we see volume then somebody buying from these panic sellers and the fact that DJI is about 5% up from the September 18th low tells that the power of these buyers is bigger...
• The same with VIX (Volatility index) - it hit the top on September 18 and now it's down and moving flat. It does not move up any more which is good sign. VIX still at high level which indicates highly oversold market. We did not see the VIX moving down which confirms we did not have yet the recovery reaction on the oversold market.
• MVO is red. We do not see green MVO. That means that we had high volume surges during the price decline (panic selling) and we did not have yet high volume during the price advance (greedy buying).
• Low SBV indicates negative money flow. Yet it declines which suggest weak market, however very low levels suggest possibility of very strong recovery.
• MACD and Stochastics are in the recovery direction.

Overall, my 1-year technical analysis is bullish (in spite the last week 3-day decline) with exception of the SBV that could be considered bearish due its decline. I would still stay on my point highlighted in my last week post that I expect to see the recovery.

DJI Volume

The record volume in the history DJI and S&P 500 indexes. We have not seen such big panic selling in the Dow Jones Industrial and S&P 500 sectors before. The major influence on the DJI slide was caused by American International Group, Inc. (AIG) which shares dropped down for more than 60%. I do not think we will see such strong panic selling soon.

By following my yesterday "S&P 500" post I may say that, yes, from one side I'm disappointed by such strong crash, from  other side I'm very happy to see the daily volume record in the S&P 500 and DJI sectors - it only confirms that we will see the indexes much higher than they are today and much higher than they were yesterday. Do I see a possibility of the further slide? - yes, there is still negative sentiment on the stock market. Yet, I do not expect to see other strong crashes. Now, after such big volume I would not trade short under any circumstances. Again, I'm just a regular trader, so, do follow my words, but do your own technical analysis.

Oversold?

Unexpected news and unexpected crash, at least for me. Yet, after the reading the news at the morning we know the market reaction on them. We’ve already been there in January 2008, and we already witness July 2008. This is the third financial company that is suffering. In both previous cases we saw it at the very bottom and then we had a strong rebound.

The last two trading session we had extremely high activity (trading volume) on the stock market which could be compared to the daily volume in the January 2008 and July 2008 only. Let's take a look at some historical record daily volume numbers below:

	NYSE	S&P 500
1st Place	January 22-23, 2008	January 22-23, 2008
2nd place	September 8-9, 2008 (now)	July 15-17, 2008
3rd place	July 15-17, 2008	September 8-9, 2008 (now)
4th place	July 11-16, 2008	July 11-16, 2008
	AMEX	DJI
1st Place	July 15-17, 2008	January 22-23, 2008
2nd place	September 8-9, 2008 (now)	January 16-18, 2008
3rd place	July 11-16, 2008	September 8-9, 2008 (now)
3rd place	January 22-23, 2008	July 15-17, 2008

Isn't it interesting... I always associate high volume surges during the price slide with panic selling and extremely high volume - with extremely panic selling which lead the market into heavy oversold stage and as a result into strong reversal..

Based on the volume technical analysis (numbers above) I can set a few points for myself:

• I believe that we are at the bottom;
• I'm expecting to see very strong and sharp recovery;
• I assume that we may see further slide (there is always a possibility of that), yet, I believe, soon we will see the stock market much higher than we are today and than we were yesterday;
• I consider it's extremely risky to be in short now - personally, today, I would rather open a long position than tried to make some money by playing down;

Again, my technical analysis is my subjective view on the stock market. I do not recommend follow it, do not relay on anyone opinion - do your own home work, at the end if you lose you lose your own money.

Nasdaq 100

In my last "Nasdaq 100 Chart" post I have mentioned about the desire of the Nasdaq 100 index to compensate in recent decline what it missed in June-July 2008 decline. I've already emphasized in July (see "DJI" post from 07/20/2008) that the Nasdaq sector was not as oversold as S&P 500 and DJI indexes at that time. It looks like now the Nasdaq stocks decided to catch in the recent decline what was misses in July. While the S&P 500 and DJI indexes were ready for the recovery the Nasdaq 100 index was still behind. However, now (over the last week) we see strong volume surges in the Nasdaq sector. The volume during the decline indicates panic selling and high volume surges during decline indicate that some traders decided to satisfy the demands of the panic sellers by buying huge amount of shares. Keep in mind that Nasdaq 100 index has been in decline since August 16, 2008 while the S&P 500 and DJI only since September 2, 2008 (only 4 trading session).

Now After this week I see very good chances for a recovery. By looking at the 1-year index charts I may assume that the Nasdaq 100 index has become oversold as well and now all three indexes have power to move up. Yet, I could be wrong and I do not recommend following conclusions of my technical analysis. Each trader has to do his/her own homework...

Coming back to my favorite 60-day chart, I see good odds of bullish market, at least at the beginning of the coming week (for the rest of the week I would analyze the same chart during the next week).

I have selected the Nasdaq 100 chart again since (on my opinion) this index was the major engine behind the recent decline. The S&P 500 and DJI indexes technical indicators look similar. This week I decided to set a table of these three indexes which summarizes used by me technical indicators and results of my technical analysis:

	Nasdaq 100	S&P 500	DJI
SBV	Bullish - Moving up
MVO	Bullish -Big volume surges. Now, MV=0 and this is a positive sign as well	Bullish - Big volume yet not as big as in the Nasdaq 100 sector
AD Osc.	Somewhat Bullish - Moving up, yet still at low negative levels
MACD	Somewhat Bullish - Moving up, yet still at low negative levels
RSI	Bearish - Still below 30	Bullish - Just moved above 30
Stochastics	Bullish - Crossed 20 and moving up
McClellan	Somewhat Bullish - Negative and far from center line

Panic Selling - Oversold Levels

Starting from the middle of July (see my DJI post on July 20, 2008) I have been accepting the high volume surges during the June-July 2008 market crass as extremely high panic selling that pushed the stock market into the heavily oversold stage. As a result of this heavy oversold level we had the recovery, yet, the recovery was not as strong as I expected. It's one and half month since the market hit the bottom and because of that I pushing myself to take another look at my longer term charts to see if there are any changes in the stock market sentiment.

By analyzing the S&P 500 and DJI indexes we may see a lot of similarities, yet, the Nasdaq 100 1-year chart has completely different picture.  No wonder that over the last month we had a lot of trading session when the Nasdaq 100 index was trying to push the market in one direction while the S&P 500 and Dow Jones Industrials were struggling to run in opposite direction.

The technical indicators on the Nasdaq 100 chart (see my set of indicators in the "New Highs/Lows" post on August 12, 2008) are not very optimistic at that point of time. Because of the last two weeks, the technical analysis of the Nasdaq 100 index gives the Bearish outlook. Taking into account that in July 2008 the Nasdaq 100 companies were not as oversold as the S&P 500 and DJI stocks it make the picture for the Nasdaq 100 even more Bearish.

At the same time the S&P 500 and DJI technical analysis still points to the higher odds of the Bullish market. In addition to the technical indicators, if I start to compare the January and March 2008 S&P 500 volume surges (panic selling) with July 2008 volume I clearly see that panic selling in July was far more extreme than in January which leads me to assume that in July the stock market reach stronger oversold levels than it was in the beginning of the year. As a result of the January and March oversold levels we had strong recovery where the S&P 500 run more than 10% up. Now, when I saw several times stronger oversold levels the S&P 500 recovered only around 7%... For me it's difficult to accept that this is over and overall, I still believe that the market has more room for recovery, and my longer term mood is still bullish. Yet, the further we go from the middle of July (bottom of the stock market crash) without recovery, the more often I will be looking at the longer term charts to see if there is any changes in the market sentiment.

Charts Technical Analysis

Another, crazy week is behind. We saw strong slides and we saw strong recoveries. The feeling that the stock market is manipulated was following me the whole week - the indexes declined even when the majority of stocks were in advance - on one day we had a news on Government attempt to give a help to financial institution on the next day we hear that these institution do not need such help. How many else surprises wait for us?

Overall, despite all negative pressure, all negative news the Nasdaq 100 index slide down only 5 points (0.3%) over the week. Keep in mind that the Nasdaq 100 index is a basket of 100 non financial companies and as a result less affected by the financial sector than the S&P 500 index and DJI index. As a result of the week the DOW index lost 188 points (1.7%) and the S&P 500 index lost 23 points (1.9%).

The question is what will the next week bring to us? Will the financial companies be able to push the stock market deeper down despite the heavily oversold stage? We saw such attempts during this week, yet we saw that the rest non financial part of the stock market tried to move the market up (we witnessed a few attempts of strong recoveries).

Last week (see my previous "Stock Market Crash" post), based on the technical analysis of the 60-day chart I have made an assumption about a possibility of the strong recovery. Yet, the market is still down. Intraday market crashes, when the Nasdaq 100 index dropped for 3% (on Friday July 10), made traders to believe that the market was going to crush even more, and I think not a lot of traders accepted the same strong recovery later on the same day as a sign of the oversold market. I think that majority of traders still believe that the market will go further down and they do not dream even about a small recovery. Maybe they are right, maybe the stock market will be lower, yet I do not think that it’s going to be "tomorrow". As I mentioned before, I see the extremely high oversold levels and on my opinion we are on an edge of a strong recovery. Even if the market tends to be lower, before, I believe it has to release some oversold power in a recovery movement.

If we compare the October 2007 – January 2008 stock market crash, with current May - July 2008 down trend we will see different price behaviors. If during the Oct-Jan crash when the indexes dropped for 2% then in majority cases they continued to drop even further. However, during the current down trend very often we witness the scenario when the indexes dropped down for 2-3% and then they moved up in strong recovery within a single session (especially over the last two weeks). It tells me that the market is driven down by a few negative companies (like Fannie and Freddie) while the rest of the market tries to recover from the heavily oversold levels. That is why I have put a question above for how long the financial companies are able to push the stock market deeper down despite the heavily oversold stage.

In order to review my position about the current market, this week, I decided to take a look at yearly index charts to see the longer term tendency of the stock market.

Chart #1: Dow Jones Industrial Index (DJI) 1 year chart - SBV(10), MACD(20,40,20), Stochastics(20,2), MVO(5,25,3)



Chart #2: S&P 500 Index 1 year chart - SBV(10), MACD(20,40,20), Stochastics(20,2), MVO(5,25,3)
 

Chart #2: Nasdaq 100 Index 1 year chart - SBV(10), MACD(20,40,20), Stochastics(20,2), MVO(5,25,3)


Personally, looking at technical analysis of 1-year chart I would consider it risky to play short at this point of time.